CAH Medicare Reimbursement: Current Issues

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CAH Medicare ReimbursementCurrent Issues
Strategies
Third Annual Western Region Flex
Conference Phoenix, Arizona

• Presented by
• John Sheehan
• June 9, 2005

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Outline
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Outline

• Rules
• Understanding swing bed reimbursement
• Changes solidifying the 25-bed limit
• Outpatient Method II billing issues
• Non-patient laboratory billing issue

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Outline

• Outlook
• Proposed CMS rule limiting necessary providers
  options for facility replacement
• Recent MedPAC discussions of CAH program future
  implications
• Pending legislation, S. 993/H.R. 2350
• Quality monitoring reporting
• Strategies to improve CAH margins

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Understanding CAH Swing Bed Payment
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Understanding CAH Swing Bed Payment

• CAH reimbursement is 101 of cost
• Ancillary cost
• Routine cost

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Understanding CAH Swing Bed Payment

• Ancillary cost is computed using each
  departments ratio of costs to charges times
  Medicare charges
• Example
• Medicare PT charges 50,000
• PT RCC 80
• PT cost 40,000
• (plus 1)

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Understanding CAH Swing Bed Payment

• Routine cost is computed using the combined
  acute/swing bed per diem times Medicare days
• Example
• Medicare swing bed
• Days 600
• Per diem 725
• Swing bed cost 435,000
• (plus 1)

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Understanding CAH Swing Bed Payment

• Points to remember. . . .
• Dont be fooled by high swing bed interim per
  diem payment
• Reimbursement system is same for both acute
  swing bed services for CAHs
• Must meet acute discharge swing bed admission
  criteria for swing bed admission

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CMS Solidified 25-bed Limit
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CMS Solidified 25-bed Limit

• Effective December 2003 MMA removed
• CAH 15 acute patient limit
• Requirement to have swing beds in order to have
  25 beds
• CMS revised State Operations Manual in April 2004
  to clarify (enforce) 25-bed limit

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Outpatient Method II Billing Issues
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Outpatient Method II Billing Issues

• Optional billing methodology for selected
  physician services to outpatients
• Must elect 30 days prior to beginning of year
• Annual election, not automatic
• Must specify which physicians are covered
• Hospital bill (UB-92) includes outpatient
  physician services
• Still receive 101 of cost reimbursement for CAH
  services

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Outpatient Method II Billing Issues

• Payment for physician services under Method II
• Medicare pays at 115 of physician fee schedule
  (sort of)
• 5 Physician Scarcity Area bonus applies
• 10 Health Professional Shortage Area Payment
  applies
• Add-ons should be automatic - but may not
• See following pages

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Non-patient Laboratory Billing
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Non-patient Laboratory Billing

• Medicare Claims Processing Manual (CMS Pub.
  100-04) 250.6 Clinical Diagnostic Laboratory
  Tests Furnished by CAHs
• A CAH cannot seek reasonable cost reimbursement
  for tests provided to individuals in locations
  such as rural helath clinic, the individuals
  home or a skilled-nursing facility

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Non-patient Laboratory Billing

• Individuals in these locations are non-patients
  of a CAH and their lab test would be categorized
  as referenced lab tests for the non-patinets
  (Bill type 14x), and are paid under the lab fee
  schedule

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Non-patient Laboratory Billing

• Individuals who have specimens collected in
  draw stations or other similar locations set up
  within non-CAH providers or facilities to collect
  laboratory specimens are not considered to be
  physically present for specimen collection, and
  payment for the clinical diagnostic tests
  performed on these specimens are paid under the
  lab fee schedule.

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Proposed CMS Rule Limiting Necessary Providers
Options for Facility Replacement
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Proposed CMS Rule Limiting Necessary Providers
Options for Facility Replacement

• CMS 5/4/05 Proposed Rule, would place severe
  restrictions on CAHs building replacement
  facilities, if
• CAH is a designated necessary provider
• Does not apply to CAHs that meet 35 or 15 mile
  criteria
• Builds on different site, as defined
• Completes replacement facility after 1/1/06

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Proposed 485.610(d)

• A CAH that has a necessary provider
  certification from the State and places a new
  facility in service after January 1, 2006, can
  continue to meet the location requirement based
  on the necessary provider certification only if
  the new facility meets either . of the
  following two tests.

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Proposed 485.610(d)

• (1) A new construction of a CAH will be
  considered as a replacement facility if the
  construction is undertaken within 250 yards of
  the current building or contiguous to the current
  CAH on land owned by the CAH prior to December 8,
  2003.

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Proposed 485.610(d)

• (2) A new facility CAH will be considered as a
  relocation of a CAH if, at the relocated site
• (i) The CAH serves at least 75 percent of the
  same service area that it served prior to its
  relocation, provides at least 75 percent of the
  same services that it provided prior to the
  relocation, and is staffed by 75 percent of the
  same staff (including medical staff, contracted
  staff, and employees) and

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Proposed 485.610(d)

• (ii) The CAH provides documentation
  demonstrating that its plans to rebuild in the
  relocated area were undertaken prior to December
  8, 2003.

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MedPAC Discussions of CAH Program
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MedPAC Discussions of CAH Program

• MMA 433 mandated the Medicare Payment Advisory
  Commission (MedPAC)
• Study impact of 9 specific sections of MMA
• Issue interim report in June 2005 on CAH
  provisions of 405 (the CAH provisions)
• Issue final report in December 2006

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MedPAC Discussions of CAH Program

• MMA 405 CAH provisions
• Change from 100 to 101 of costs
• Coverage for on-call ER NPs PAs
• Reinstatement of PIP
• Expanding access to Method II
• Increase to 25 acute beds
• Reauthorization of Flex grants
• Ability to have psych rehab DPUs
• Elimination of necessary provider exception

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MedPAC Discussions of CAH Program

• Commission discussed CAH program
• March 2005 meeting
• April 2005 meeting
• Transcripts available at http//www.medpac.gov/
• Click meetings
• Click transcripts
• Information below is based on transcripts of
  meetings

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MedPAC Discussions of CAH Program

• At April meeting, staff proposed 2
  recommendations
• Swing bed reimbursement should be reduced by
• Eliminating 101 of cost reimbursement
• Reinstituting old care-out methodology
• CAHs lt 15 miles from another hospital or CAH
  should lose CAH status
• With few exceptions a transition provision
• 151 CAHs were identified, but data was old

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MedPAC Discussions of CAH Program

• After lengthy discussion, Commissioners
• Rejected recommendations as unsupported by
  research to-date
• Approved reporting that these matters were
  identified for further study
• General attitude about CAH program remains a
  serious concern
• Chairmans comments at close of discussion follow

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Pending Legislation - RCH Act
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Pending Legislation - RCH Act

• Rural Community Hospital Assistance Act
• S. 933 introduced by Senators Nelson Brownback
• H.R. 2350 introduced by Rep. Moran with 16
  original cosponsors
• Very similar to 2004 bill
• Improves CAH program
• Creates Rural Community Hospital designation

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Pending Legislation - RCH Act

• Improvements to CAH program
• May have psych rehab Distinct Part Units (DPUs)
• Duplicates MMA provision
• Payment improvements
• 101 of cost for all CAH ambulance services
• 101 of cost for distinct SNF units
• 101 of cost for psych rehab DPUs

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Pending Legislation - RCH Act

• RCH criteria
• Rural
• 50 or fewer beds
• Provides 24/7 ER services
• Operating as of 1/1/05
• May have psych rehab DPUs

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Pending Legislation - RCH Act

• RCH payment 1-time election of regular PPS
  payments or
• 101 of cost for inpatient acute care
• 101 of cost for outpatient services
• 101 of cost for home health care
• But only if its a very isolated HHA

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Pending Legislation - RCH Act

• Additional RCH payments
• 100 of Medicare bad debts
• 101 of cost for ambulance services

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Pending Legislation - RCH Act

• Compared to RCH, CAHs have cost reimbursement in
  areas that RCHs dont
• Swing beds
• SNF
• Psych rehab DPUs

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Quality Monitoring Reporting
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Quality Monitoring Reporting

• Focus on quality is growing will continue
• HHS Hospital Compare website
• Live 4/1/05 at www.hospitalcompare.hhs.gov/
• Growing efforts to pay for performance
• PPS hospitals penalized for not reporting
  effective 10/1/04
• Quality will continue in the spotlight

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Quality Monitoring Reporting

• MedPAC analyzed quality of care at CAHs
• Findings were somewhat positive, but mixed
• Analysis was limited by available data
• Expect more scrutiny of your quality

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Quality Monitoring Reporting

• HHS hospital compare website
• Segregates CAHs
• Characterizes 2 classes of hospitals
• Acute care (general hospitals)
• Critical access (small, remote hospitals)
• Cant accommodate comparison between the 2 groups
• Presents low volume hospitals in negative light
• Examples from site . . .

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Quality Monitoring Reporting

• Recommended actions by CAHs
• Be vocal about this portrayal of CAHs
• Participate in voluntary data reporting
• Participate in other programs
• Programs that track performance
• Programs that improve performance
• Code claims accurately
• Focus on quality
• Plan for EHR (electronic health record)
• Anticipate pay for performance

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Strategies to Improve CAH Margins
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Top 10 List Strategies to Improve CAH Margins

• Operate CAH as a business
• Develop a bed management strategy
• Design a revenue cycle management program
• Improve Medicare reimbursement
• Avoid Medicare cash flow trap

• 6. Develop optimal pricing strategies
• 7. Improve clinic performance
• 8. Manage labor non-labor resources
• 9. Evaluate capital expenditures needs
• 10. Evaluate new products services

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Operate CAH as a Business

• Forget Medicare cost based myth
• Maximize productivity minimize expenditures
• Prepare meaningful budgets
• Closely monitor budget hold departments
  accountable for performance
• Develop dynamic strategic business plan
  quantify financial implications
• Establish financial benchmark goals

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Develop a Bed Management Strategy

• Utilize hospital acute care beds effectively
• Enhance utilization of swing bed program
• Educate physicians staff on bed management
  third-party payer coverage issues
• Evaluate performance of home health
• Evaluate the feasibility of excluded units

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Design a Revenue Cycle Management Program

• Contracting - review negotiate contracts with
  third-party payers
• Patient admitting registration - design patient
  access system to produce clean claim
• HIM - develop effective health information system
  to provide for management of patient
  documentation final code assignments
• Patient accounting
• Maximize cash flow by developing following
  effective policies procedures
• Submit timely claims
• Prepare clean claims
• Minimize denials appeal them whenever
  possible
• Employ effective collection efforts to
  minimize bad debts

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Improve Medicare Reimbursement

• Review cost finding allocation statistics, e.g.
  square footage
• Review cost allocations to non-reimbursable cost
  centers
• Claim all allowable costs
• Identify all non-allowable costs
• Assign costs to appropriate cost centers
• Elect Method II billing, if beneficial
• Receive HPSA bonus payments
• Capture all qualifying Medicare bad debts (100
  reimbursed)
• Claim proper depreciation (capitalization policy,
  election of useful life, idle square footage,
  etc.)
• ER stand-by on-call arrangements

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Avoid Medicare Cash Flow Trap

• Closely monitor Medicare interim rates
• Be aware of changes such as volume fluctuations,
  inpatient outpatient shifts, price increases,
  cost increases and decreases, etc.
• Prepare interim cost reports
• Prepare monthly or quarterly monitoring
  calculations
• If Medicare overpays CAH hospital spends the
  cash, its difficult to repay the liability
• Interest on loans to repay Medicare overpayments
  is a non-allowable cost

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Develop Optimal Pricing Strategies

• Evaluate departments that are winners losers
• Prepare departmental operating analysis
• Evaluate market prices
• Implement CDM management program
• Perform strategic pricing analysis
• Endeavor to make non-Medicare business profitable

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Improve Clinic Performance

• Evaluate how physicians are compensated
• Evaluate provider based RHC model
• Evaluate provider based clinic model
• Conduct operations review of clinic
• Evaluate arrangements with physicians in
  specialty clinics

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Manage Labor Non-labor Resources

• Labor costs productivity
• Compare actual results to benchmarking sources
• Perform salary survey
• Perform benefit analysis
• Conduct employee attitude survey
• Reduce hospital turnover rate

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Manage Labor Non-labor Resources

• Non-labor costs
• Restrict who can sign contracts
• Evaluate make vs. buy
• Implement competitive bid policy
• Capitalize on group purchasing contracts
• Consider cost sharing with other hospitals
• Evaluate lease versus purchase

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Evaluate Capital Expenditures Needs

• Evaluate age condition of physical plant
• Prepare equipment needs analysis
• Prepare capital expenditure budget (5 year plan)
• Prepare debt capacity study
• Evaluate lease vs. buy
• Preservation of capital
• Funded depreciation
• Excess working capital
• Cash flow trap

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Evaluate New Products Services

• Evaluate community need
• Evaluate competitive issues
• Interview community leaders, physicians, staff,
  etc.
• Perform RD of new products services
• Prepare financial profitability analysis
• Perform financial reimbursement analysis before
  adding new products services

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Summary of Strategies

• Operate as a business
• Develop a bed management strategy
• Fine-tune revenue cycle management program
• Conduct a comprehensive review of Medicare
  payment program
• Closely monitor Medicare payment rates
• Develop appropriate pricing strategies
• Monitor physician mid-level productivity
  level of compensation

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Summary of Strategies

• Manage labor non-labor expenses by benchmarking
  by closely monitoring the budget
• Evaluate capital expenditures based upon needs
  develop a strategic capital plan
• Evaluate new products services based upon
  community need financial feasibility

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Thank You!

• John Sheehan, CPA
• Partner
• BKD, LLP
• 501 N. Broadway, Suite 600
• St. Louis, Missouri 63102
• 314 231-5544
• jsheehan_at_bkd.com